Investors hit hard as Apple bonds tank

“Investors in Apple’s record U.S. $17 billion bond deal have suffered some of the biggest losses in recent investment-grade new issues, with about $760 million wiped off the value of longer-maturing Apple securities that they bought just weeks ago,” Danielle Robinson reports for Reuters.

“The prices of the Apple $5.5 billion 2.4 percent 10-year and the $3 billion 3.85 percent 30-year bonds have plunged so much since the deal priced on April 30 that it would take about three years of earned interest from the coupons for investors to cover their losses,” Robinson reports. “‘Basically if you own this paper, you’re sitting on it for three years or selling at a loss,’ said Rajeev Sharma, senior portfolio manager at First Investors Management, who bailed out of his position in the 10-year at a loss some weeks ago… ‘This deal is great for shareholders because of the tight coupons Apple locked in to pay for dividends and share buybacks, but everyone who didn’t hedge out rate risk – the Moms and Pops who have money in total-return funds – are looking at dollar losses that will suck up a lot of coupon payments,’ said one senior manager of a bond syndicate desk who was not involved in underwriting the deal.”

Robinson reports, “Apple attracted a record 2,000 orders worth $50.2 billion from 900 investors when it made its debut in the bond markets in late April, when the 10-year Treasury rate was 1.67 percent versus 2.4 percent today. ‘This is not Apple’s fault,’ said the senior manager. ‘It’s a fantastic credit. This deal could not have been better timed or executed in terms of pricing. And in terms of credit spreads, it’s widened out – but not by as much as many other names in its sector.'”

Read more in the full article here.

MacDailyNews Take: Color Apple bondholders iBond blue™.

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  1. Apple’s going through dark time, but there is light at the end of the tunnels rather sooner than later by the end of the year. So investors just hold on real tight.

      1. Exactly. And it is/was foolish for anyone to buy into long term bonds from Apple or anyone else at historically low interest rates. The longer the term of the bond the more the value of the bond fluctuates with changes in interest rates. If interest rates go up, then the value of the bond drops to keep it competitive with current bond offerings. The Apple bonds still have the benefit of a high investment grade rating due to Apple’s tremendous financial strength. But interest rates have been depressed for quite a few years. This interest rate trend started in the late 1990s and rates recently hit historic lows. Apple borrowed tens of billions of dollars at rock bottom rates – pretty darned smart in my opinion.

  2. If you bought the debt to hold until maturity, nothing has changed. It’s only if you are trading the debt, where the value has gone down if rates go up. Duh.

  3. ‘This is not Apple’s fault,’ said the senior manager. ‘It’s a fantastic credit. This deal could not have been better timed or executed in terms of pricing. And in terms of credit spreads, it’s widened out – but not by as much as many other names in its sector.’”

    So why is Apple Corporation singled out , while the whole WS market is collapsing (as planned)?

    1. David, next time try selling when you have a sizable profit. Remember that’s why you invested in the first place. Right? As was aptly stated above, “that’s called capitalism”. There are no guarantees when you invest in equities. Despite what some may say, buy and hold forever is not a strategy. Quite the contrary, it’s a lack of strategy. Be a disciplined investor and follow your own guidelines. Parameters David, you have to have parameters when you invest. Know when to take your money off the table. Don’t be greedy. Don’t be one of those who claims that they’ll get back to even someday in AAPL David. Learn to take your profits. Don’t be greedy. Don’t be foolish. Apple was at $705 in September David you should have cashed in then. No stock, not even AAPL, will go up forever David. Also learn to diversify in other equities in different sectors of the economy David. The stock market went on a tear upward from January through May of this year. So you also missed all of those gains. Have a plan David. It’s not difficult, you just have to study and do your due diligence. Buying a stock and holding it forever is not a plan David. Not with any stock. Regardless of dividends. You can always buy back into a stock at the appropriate time. And believe me, all those underwater in AAPL right now would love to go back to last September and be able to sell. Including all those who claim they bought in at seven dollars. Good luck David.

      1. Know when to hold ’em, known when to fold ’em;
        Know when to walk away, know when to run!

        I don’t think the name of that song was “The Investor”

          1. I’m going to continue to have difficulty placing my retirement savings in what you clearly accept is a game. Especially a game where the main rule is “Don’t get caught”.

            1. I didn’t use the song about gambling as the analogy. If you’ll notice. But investing in equities or bonds or real estate or just about anything is a gamble. There’s generally a risk reward ratio. You can always use T-bills, savings bonds or a passbook savings account. But lots of luck keeping up with inflation. Life is a gamble. It’s dangerous backing out of your driveway every day. That’s why I back in. I try to lower my risks where possible. Yes, investing is risky. That’s what you should diversify and learn to take your profit when it is available. Stocks don’t go up forever. None of them.

            2. The song just says what you said, but it correctly identifies the activity as gambling, rather than investing. That was my only point.

              The headline in the article was “Investors hit hard as Apple bonds tank”. Bonds don’t tank. Investors are never hit hard with bonds as long as the company pays the coupons and returns the money at the end. Gamblers, who think they’ll flip the bonds when interest rates drop, get hit.

            3. That’s what GM was saying too. Life is a gamble that we can only break even at. It’s just that he wants to count his money while he’s still at the table (investment parameters, taking your profits, etc). Only works is a fair game. If the game is rigged, that’s when you run.

  4. Bonds will be okay because they mature. AAPL – another story all together. Headed south way worse than market as a whole because investors have no confidence in Tim Cook’s ability to lead the once great company. I know this sounds repetitious but lemmings on this site just won’t face reality.

    1. The reality is that you can no longer invest based of the quality of a company but have to look at how much wall street is manipulating value for broker gains. Talk it up and get people to buy and score a commission then talk it down and get the same people to sell and score a commission. Since Cook took over apple has continued to grow and set company records for sales and profits. What you see in apple is not a true lack of confidence in leadership but stock manipulation for broker gains.

      1. No matter how big a company is or how much money they make wall street will not give it a fair valuation unless its still growing. Right now Apple is priced for 0 growth and if they dont beat this quarter look out below. But people who know this market and Apple know there is more growth coming. They didnt pull a miracle out of their rear end every year when Steve was there either but there are a few coming.

        1. Would you consider Microsoft a company that is still growing? Would you say it has greater growth potential than Apple at this point? Currently, Microsoft has a P/E of 17 while Apple has a P/E of 9.8. Do you consider that a fair valuation of Apple as a company based on growth. It appears to me Apple is being given a value based on negative growth. What exactly is Microsoft doing now to gain such a high valuation for a company that’s getting left behind in the mobile industry and a declining Wintel PC industry. I’m sorry, but in Microsoft’s case, fair valuation for growth defies reason.

          1. As have others I’ve been following AAPL for many years. It seems that there are a group of stock traders who only follow the latest hot news. Apple famously doesn’t telegraph their future moves so there is little to drive the stock. On the other hand, how dumb are these people? Apple consistently produces really solid products that sell well, yet if they don’t see something for a few months then Apple is doomed or “dead in the water”. I think they look at MS and feel that they have a lock on at least some of their business as the enterprise crowd is locked into windows for the time being.

            To be fair, Horace has pointed out the difficulty of analyzing Apple. Periodically it comes out with fantastic products that drive the business, but you can’t predict when that happens or how strong the effect will be. At the other extreme you have something like someone making cardboard boxes. No surprises there. When business goes up the need for cardboard boxes increases. When business goes down sales go down. Nice and predictable, but virtually no profits.

    2. @JM
      If you have any iota of functioning rationality in which you actually wanting to persuade people to anything you write, you are failing utterly (and always will).

      Calling people names has the automatic effect that readers think you are a rude jerk and will simply dismiss anything you say.

      If you want to persuade someone to an idea, just express the idea — with a clear and cogent argument.

      1. hypocrisy |hiˈpäkrisē|

        noun ( pl. hypocrisies )
        the practice of claiming to have moral standards or beliefs to which one’s own behavior does not conform; pretense.
        ORIGIN Middle English: from Old French ypocrisie, via ecclesiastical Latin, from Greek hupokrisis ‘acting of a theatrical part,’ from hupokrinesthai ‘play a part, pretend,’ from hupo ‘under’ + krinein ‘decide, judge.’

        1. SYNONYMS: dissimulation, false virtue, cant, posturing, affectation, speciousness, empty talk, insincerity, falseness, deceit, dishonesty, mendacity, pretense, seamus, duplicity; sanctimoniousness, sanctimony, pietism, piousness; informal phoniness, fraud. ANTONYMS: sincerity.

      1. Right on time – the old, tired, meaningless “troll” response. It’s the only think the lemmings can think of since my clear and cogent argument has no other answer. And, again, what the company has done in the past with sales, profits, market share or where they are today is of NO INTEREST to investors. It’s all about the future and they don’t see any under Tim’s “leadership” – and please, all the market manipulation is over – now, it’s all about investors making decisions and what they see at Apple doesn’t interest them. It’s so obvious and yet blind followers of the company and the every utterance out of the mouth of Tim still sounds golden even if it’s just crap.

        1. Garbage. Utter nonsense. You’re only referring to one type of “investor”. Those guys can go ahead and jump shit to clear the way for less emotion based investors – the Warren Buffets of the world – and again begin investing on what really matters. Great products that consumers are willing to pay MORE for.

          Both Apple AND AAPL are going to be just fine. More than fine in fact. Tim Cook has a steady hand and has shown fire when he needed to.

          The best of Apple is yet to come and feel free to visit THIS comment one year from now as a reference.

  5. Tim Cook: stop screwing over your small investors by bending over to Wall Street’s greedy demands. Instead of playing financial shell games, take Apple’s prodigious earnings and put it into new product development, employee training & “in-sourcing”, and if you still have money left over, stock dividends can increase slightly.

    Any financial plan more complicated than this from a company that practically prints money can only serve to divert more money away from people who earned & invested and into Wall Street’s greedy, undeserving hands.

      1. Never said he isn’t — it’s just that the fruits of Apple R&D in the past couple years has been very underwhelming, a pretty decent WWDC notwithstanding. There are several aging Apple products and services that desperately need updates, and that requires Tim to stop wasting money on financial games and Aerobie offices and instead expand the Apple user base with more, and more capable, hardware and software.

        1. Apple has enough money to do both. But coming up with new hardware and software is much more difficult than making financial moves with your extra cash. But yes, Apple does need something new in the product line. Not just a refresh of the iPhone 5. Or a retina iPad Mini, whenever that comes. Apple needs something new and dynamic. But we all know that. So Apple is certainly aware of it. Upgrading or coming up with a new iPhone is one thing. Coming up with an all new product is something entirely different. That doesn’t happen every day. Even at Apple. And believe it or not, there are very smart people working just as hard at competing companies. When this revolutionary new product/system comes along Apple will go up. Until then it will be small gains at best.

    1. If Apple would start actually listening to what users want instead of dictating to them what they want, Apple could turn around.

      But that is unlikely to happen and the one size fits all approach will lead to the gradual decline of this once great company.

      Apple stock was almost on par with Google just recently. Now it is half. Wake up sheeple.

      1. If Apple would start actually listening to what users want instead of dictating to them what they want, Apple could turn around. — McMan

        If I had asked my customers what they wanted they would have said a faster horse. — Henry Ford

    1. You may recall another excellent pioneering user-focused company that started up in the Silicon Valley. Hewlett-Packard used to be an admirable company before the founders retired and it was taken over by professional managers who turned their backs on all the things that made HP great, Now it’s just another pyramid run by clueless managers who care only about shipping units and collecting bonuses — certainly no engineering leadership, user focus, or pride in innovation. Saps who bend over to every Wall Street shakedown.

      Is that the Apple that users want to see? Does the Apple community really want company leadership to spend its effort designing financial games to sucker in more investors to raise more cash that it can’t possibly use? How embarrassing that a highly profitable company has been convinced that it needs to screw others out of more money to feed Wall Street and their obscene executive accounts.

      The less time Apple spends enriching the fat cats of Wall Street, the better off the company will be.

  6. I’m buying into Apple at this price. Most of the hedge funds have already exited this stock and although I wouldn’t call it a floor (Apple stock has no floor) I believe there will be an easy 25% upside when new iPhone sales are started. I knew this would be a terrible summer for Apple shareholders so I’m pretty much prepared for this current movement. As long as Apple keeps the dividends coming I don’t think buying Apple is too big a risk. I bought most of my shares well under a $100 so I don’t feel I’m losing anything.

    After seeing Samsung’s stock get hammered, I know there is something really wrong with the way companies are being valued by those hedge fund investors. Expectations just run too high in this economy. I’m going to stick with a company I know is earning serious money even if it doesn’t readily filter down to shareholders. I honestly don’t believe the hedge funds can keep riding vaporous stocks like LinkedIn and Netflix forever if the overall market continues to drop.

    1. I agree with the floor comment. We could see Apple down below $400 soon. I’d wait a few weeks or even a month or so before getting back in. I think it’s just going to trade sideways unless Apple announces something completely out of left field. Wouldn’t that be nice! Earnings is coming next month and it doesn’t look good. So I’d be careful about getting in now. The iPhone 5S should be here in September but it doesn’t look to be anything revolutionary so I don’t know how the street is going to react to it? The smaller iPhone may be a hit but it’s not guaranteed. It should be here in September also. Remember, you don’t have to be in the first 10% of a stock going up or down. And there are other companies to invest in besides AAPL. You can love all your Apple stuff as I do but never fall in love with an investment. Never. It’s been nine months since Apple was at its height. 9-21-2012. Nine months is a long time hoping to get back to even someday. Nine months of lost opportunity in a great market.

  7. Why are people bitching? Investors don’t need to sell the bonds. They can hold on to the bonds and collect interests. They won’t lose a penny. This is the same as buying bank GICs.

  8. Humph. Obviously something is screwed up on Wall Street and in the US tax structure for any of this to have happened. The most profitable company on the planet selling debt bonds? Utterly ridiculous.

    Wake the hell up Wall Street and US government! You’re the catastrophe, NOT Apple.

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